London housing market shows new bubble signs - report

A construction worker assembles metal frames at a housing development project in south London August 6, 2013.

Reuters/Andrew Winning

LONDON (Reuters) - London's housing market looks like it is going into bubble territory as property prices soar compared with earnings, according to a report released on Monday.

Houses in the British capital cost an average of 11 times individual Londoners' income, a level last seen before the financial crisis, according to a report by forecasting group ITEM Club, which is sponsored by Ernst & Young.

That compared with a multiple of 6.5 times for Britain as a whole and represented "bubble-like conditions," the report said.

"House prices across most of the country remain well below their pre-crisis peaks and there seems little danger of a bubble developing," Andrew Goodwin, senior economic advisor to the ITEM Club said.

"But London, which is suffering from a combination of strong demand and a lack of supply, is increasingly giving us cause for concern."

The capital has repeatedly stood out in surveys showing the strength of Britain's housing market, partly due to interest from foreign investors.

The government said in December it would impose a capital gains tax on foreign investors selling homes that are not their primary residence.

The pace at which houses are coming onto the market was failing to keep pace with demand, a separate survey by property analytics business Hometrack showed.

The gap between supply and demand in England and Wales hit its widest level since 2009 in January as the number of homes for sale fell 6.6 percent, contracting for a fifth straight month.